Reviewing American Eagle Outfitters (NYSE:AEO) and GAP (NYSE:GAP)
by Amy Steele · The Cerbat GemGAP (NYSE:GAP – Get Free Report) and American Eagle Outfitters (NYSE:AEO – Get Free Report) are both mid-cap retail/wholesale companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, profitability, risk, valuation, institutional ownership, analyst recommendations and earnings.
Profitability
This table compares GAP and American Eagle Outfitters’ net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| GAP | 5.05% | 28.89% | 6.92% |
| American Eagle Outfitters | 4.58% | 20.98% | 10.25% |
Risk & Volatility
GAP has a beta of 2.35, suggesting that its stock price is 135% more volatile than the S&P 500. Comparatively, American Eagle Outfitters has a beta of 1.51, suggesting that its stock price is 51% more volatile than the S&P 500.
Analyst Ratings
This is a summary of current recommendations and price targets for GAP and American Eagle Outfitters, as reported by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| GAP | 0 | 3 | 0 | 0 | 2.00 |
| American Eagle Outfitters | 1 | 4 | 3 | 0 | 2.25 |
GAP currently has a consensus target price of $27.00, indicating a potential upside of 30.31%. American Eagle Outfitters has a consensus target price of $25.75, indicating a potential upside of 25.06%. Given GAP’s higher possible upside, analysts plainly believe GAP is more favorable than American Eagle Outfitters.
Earnings and Valuation
This table compares GAP and American Eagle Outfitters”s top-line revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| GAP | $15.17 billion | 0.51 | $502.00 million | ($27.20) | -0.76 |
| American Eagle Outfitters | $5.41 billion | 0.75 | $170.04 million | $1.11 | 18.55 |
GAP has higher revenue and earnings than American Eagle Outfitters. GAP is trading at a lower price-to-earnings ratio than American Eagle Outfitters, indicating that it is currently the more affordable of the two stocks.
Dividends
GAP pays an annual dividend of $0.60 per share and has a dividend yield of 2.9%. American Eagle Outfitters pays an annual dividend of $0.50 per share and has a dividend yield of 2.4%. GAP pays out -2.2% of its earnings in the form of a dividend. American Eagle Outfitters pays out 45.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. GAP is clearly the better dividend stock, given its higher yield and lower payout ratio.
Insider & Institutional Ownership
97.3% of American Eagle Outfitters shares are held by institutional investors. 7.3% of American Eagle Outfitters shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.
About GAP
The Gap, Inc. operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include adult apparel and accessories; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls. The company offers its products through company-operated stores, franchise stores, websites, and third-party arrangements. It has franchise agreements to operate Old Navy, Gap, Banana Republic, and Athleta stores and websites in Asia, Europe, Latin America, the Middle East, and Africa. The Gap, Inc. was incorporated in 1969 and is headquartered in San Francisco, California.
About American Eagle Outfitters
American Eagle Outfitters, Inc. operates as a multi-brand specialty retailer in the United States and internationally. The company provides jeans, apparel and accessories, and personal care products for women and men under the American Eagle brand; and intimates, apparel, activewear, and swim collections under the Aerie and OFFLINE by Aerie brands. It also offers menswear products under the Todd Snyder New York brand; and fashion clothing and accessories under the Unsubscribed brand. The company sells its products through own and licensed retail stores; concession-based shops-within-shops; and digital channels, such as www.ae.com, www.aerie.com, www.toddsnyder.com, and www.unsubscribed.com. American Eagle Outfitters, Inc. was founded in 1977 and is headquartered in Pittsburgh, Pennsylvania.